The term “stock market” is often used to refer to the financial markets in general. The stock market is where companies can be publicly traded, and where investors can buy and sell securities of different financial instruments.
The purpose of this post on the Stock Market of India is to understand Indian markets in terms of their corporate finance and investment valuation.
What Is a Stock Market?
The stock market, generally known as the share market is an entity where the general public and institutions or businesses can buy or sell shares of different companies. In simple terms, a stock market is a market where stocks are traded.
A stock is a share in the ownership of a company. When you buy a stock, you become a part owner of the company. Generally, a stock market consists of several stock exchanges. In the case of India, the main stock exchanges are the National stock exchange (NSE) and the Bombay stock exchange (BSE).
The other most well-known stock exchanges are the New York Stock Exchange (NYSE) in the USA, the London Stock Exchange in the UK, and the Tokyo Stock Exchange in Japan. To know the difference between the stock market and the stock exchange you can visit here.
Stock Exchanges: NSE and BSE
NSE and BSE are the two largest stock exchanges in India. Both of these allow investors to buy or sell stocks directly on their websites. NSE is called National Stock Exchange (NSE), while BSE is called the Bombay Stock exchange (BSE).
The BSE was founded in the year 1875 while NSE was founded in 1992 but started trading in the year 1994. Both exchanges follow the same electronic trading mechanism, the same settlement process, trading hour, and more.
Stock Trading Mechanism
Trading at each of the exchanges takes place via an open electronic limit order book wherein order matching is completed with the support of the trading system.
There aren’t any market makers and the complete process is order-driven, because of that the market orders placed by buyers are robotically matched with the best quote orders. As a result, buyers and sellers remain anonymous.
However, in the absence of a buyer or a seller, there is no guarantee that stock buy or sell orders will be executed.
Stocks order placed by the trader must go through a stockbroker and most of them provide online trading systems.
Who is a Stock Broker?
A stock broker is someone who buys and sells stocks for investors in exchange for commission also called brokerage. When you buy a stock, the stockbroker buys it for you from another investor. When you sell a stock, the stockbroker sells it to another investor.
In India, you need to have a stock broker to trade in the stock market. To trade in the market, you have to open a trading and DEMAT account, which the stock broker will provide you.
There are two types of stock brokers;
- Regular Full-Service Broker
- Discount Broker
The regular full-service brokers generally charge more commission or brokerage compared to the discount brokers but both have their merits and demerits.
Trading hour and Settlement
Trading on the equities and derivative segment take place on all days of the week except for Saturday, Sunday, and on national holidays.
Trading hours of the Indian Stock Market
1) Pre-open session
Order entry & modification Open: 09:00 hrs
Order entry & modification Close: 09:08 hrs*
2) Regular trading session
Normal / Limited Physical Market Open: 09:15 hrs
Normal / Limited Physical Market Close: 15:30 hrs
3) Closing Session
The Closing Session is held between 15.40 hrs and 16.00 hrs
4) Block Deal Session Timings:
Morning Window: This window shall operate between 08:45 AM to 09:00 AM.
Afternoon Window: This window shall operate between 02:05 PM to 2:20 PM.
Settlement Cycle of Indian Stock Market
Stock bought in the share market of India is settled in T+2 days (2 working days), which means stock bought on Monday will be credited to the DEMAT account on Wednesday.
Whereas stock sold in the market is settled on T+1 day which is the same for equity derivative and currency derivative segments. For more details, you can visit NSE’s official website.
Nifty and Sensex
The Bombay Stock Exchange’s Sensex and the National Stock Exchange’s Nifty are the two most prominent stock indices in India. They are used to gauge the overall performance of the stock market and are often used as a barometer to measure the health of the economy.
The Sensex is a basket of 30 stocks that represent a cross-section of the Indian economy. It is widely considered to be a bellwether for the Indian stock market. The Nifty, on the other hand, is a basket of 50 stocks that represent the cream of the crop of the Indian stock market.
Both the Sensex 30 and the Nifty 50 are widely followed by investors, analysts, and media representatives.
The Securities and Exchange Board of India (SEBI) is the regulator of the securities market in India. It was established in the year 1988 and given statutory powers on 30th January 1992 through the Securities and Exchange Board of India Act, 1992.
SEBI has three functions combined in one body, a quasi-legislative function, a quasi-judicial function, and an executive function.
The objective of SEBI is to protect the interests of investors in securities and to promote the development of, and regulate the securities market. SEBI lays down regulations and by-laws about the securities market, which the market intermediaries have to follow.
SEBI has taken several initiatives in the past few years to make the securities market more investor friendly and to deepen and widen the market. SEBI has made it mandatory for all listed companies to have a website of their own and to put it in the public domain.
Who Can Invest In the Indian Stock Market?
All the citizens of India above 18 having their PAN card can trade or invest in the stock market in India except for those who are barred by the market regulator SEBI.
Foreign investments are classified into two categories; Foreign Direct Investment (FDI), and Foreign Portfolio Investment (FPI).
The investment in which the foreign investor takes part in the day-to-day management activity and operation of the company is called FDI.
Whereas FPI can invest in a company without taking part in the company’s management and operations.
In order to invest in the stock market of India, foreign investors have to register themself as foreign institutional investors (FII). There is a certain investment limit for foreign Investors based on the sector and investor category.
Investment Limits and Restrictions In the Stock Market of India
The government of India (GOI) specifies the FDI limit, and different investment limits have been prescribed for different sectors. Over a period of time, the government has been progressively increasing the investment limit mostly falling in the range of 26% to 100%.
By default, the highest limit for portfolio investment in a particular listed company is decided by the FDI limit defined for the sector to which the firm belongs.
Investment by any single FII in any particular firm is restricted to 10% of the paid-up capital of the company. Regulations also permit a separate 10% ceiling on investment for each of the sub-accounts of foreign institutional investors.
For single individual investment, the upper limit is restricted to 5 percent. For more details, you can read SEBI’s notification regarding investment limits.
So, if you are interested in investing your money in stocks and want to play the stock market, the Stock Market of India is the right place to begin your journey into the world of investments. With more people getting on to the bandwagon every day, why not you? Are you prepared to take that leap of faith?